While prenuptial agreements were once viewed with suspicion by trial courts,
a recent decision reflects the current trend to uphold them particularly
when the complaining party has competent legal representation and practical
access to all relevant information concerning the other person's finances
- whether they took advantage of that opportunity or not. One lesson is
that people need to take the waivers set forth in these agreements quite
seriously, because there is high likelihood you will become stuck with them.
One of the useful aspects to the Second Appellate District's decision in
In Re Marriage of Hill and Dittmer is that the justices kindly include an Appendix setting forth selected
portions of the prenup which were upheld as fully enforceable, providing
family law practitioners who draft premarital agreements a useful partial
template for language that will likely pass muster.
The opinion also demonstrates how important it is for the parties, and
their attorneys, to maintain a complete file of the negotiations leading
to the execution of such agreements including maintaining copies of the
succession of drafts that come to be altered as discussions evolve, as
potential evidence when the agreement is (inevitably?) attacked. Whether
premarriage agreements will be enforced years later is a highly fact specific
inquiry. Many lawyers are reluctant to be involved in drafting them, because
they are seen to be potential malpractice traps. Those that do often charge
significant fees as a result, in order to justify the risks of subsequently
being sued by their own former clients. This case is interesting because
the wife, who came to challenge the agreement some seven years after she
signed it, ultimately had her own attorney be the primary drafter of the
agreement. That attorney evidently did a good job in helping to create
an agreement that would be, and turned out to be, binding - which is not
what the wife wanted to have happen years later, after the fact. Where
one party later perceives that they will be better off if their premarital
agreement can be set aside, the first thing their (new) lawyer will do
is to try to find a "hook" for attacking its enforceability.
This case represents a creative attempt by wife's attorneys to create
such a hook by contending that the husband had misrepresented his net
worth when it was signed, but their efforts failed.
Sandra Hill and Thomas Dittmer married in April, 2001. Some six months
prior to the wedding, Dittmer insisted that before he would marry, they
needed to execute a premarital agreement. At that time, Hill agreed. Each
was wealthy and business savvy by any standard. Hill had a net worth of
at least $10 million, and Dittmer possessed at least $40 million. Each
had "high-pressure jobs which required deadlines to be met and contracts
reviewed, edited, and signed." Hill had been a magazine editor and
published author, and had her own television production company; Dittmer
was the founder of a major commodities trading company.
Hill hired Santa Barbara family law attorney Jamie Raney to represent
her, and they first met to discuss it three months before the marriage.
While Dittmer's attorney prepared an initial draft, Raney decided
that it would be better for her client if Raney drafted the agreement
and Dittmer agreed to allow this to occur. Numerous versions were created
and exchanged as the agreement took shape, and evidently these drafts
were maintained in the attorneys' files over the ensuing years and
so came to be admitted into evidence in the subsequent trial. The more
drafts that are generated, as they agreements are being formed, the greater
the inference that both parties are actively engaged in an arm's length
transaction to create a contract that they both intend to be binding and
which they both fully understand. Hence, when one soon to be spouse is
favored over the other, or gains benefits they view as important, that
spouse's counsel very much wants the other party's attorney to
actively input into changes to the agreement. For instance, when I draft
them on behalf of the person with greater income or assets, the last thing
I hope for is that the other side will just accept my version. Indeed,
some lawyers intentionally leave mistakes in a draft (misidentifying parties,
misspellings, provisions they know aren't acceptable) exactly so there
is a record that these were corrected or changed.
The agreement came to be signed on the day of the wedding, before the
ceremony. It included a waiver of spousal support and precluded the creation
of community property during the marriage by reason of the contributions
of time, skill, and efforts of each party, that would otherwise have belonged
to them jointly but for the prenup.
As is often the case where the enforceability of a premarital agreement
is in issue, the trial court bifurcated the proceedings and permitted
an early trial of that issue alone since if the agreement was upheld,
the overall case would be severely truncated and shortened.
Hill's best argument to challenge her agreement was evidently that
Dittmer had failed in the agreement to actually disclose the nature and
extent of his income and assets beyond a generalized representation that
his net worth amounted to $40 million. To prove this assertion Hill attempted
to obtain discovery of Dittmer's net worth when the agreement was
signed, which would likely have consisted in the information she could
have obtained but did not then obtain. Dittmer resisted this discovery
as largely irrelevant, but the trial court allowed some limited inquiry
by Hill but not to the degree that she had wanted.
Dittmer's attorney had smartly insisted a provision be added to the
agreement that acknowledged that Dittmer had provided Hill's legal
counsel with full and complete access to Dittmer's financial information,
including an opportunity to consult with Dittmer's attorney and his
accountants and other representatives "as to the nature, value and
cash flow from any of his assets and the nature and extent of his liabilities."
This turned out to be Hill's undoing - Hill never availed herself
of this invitation, and conducted no inquiry. This effectively waived
her right to contest the agreement on this basis later, notwithstanding
the fact that the first draft that Raney circulated was presented on March
23, 2011, and that the revision with this acknowledge came "a week
later" and therefore on or about April 1. Raney faxed Dittmer's
attorney the final draft of the agreement on April 11, 2001, three days
before the wedding day, when it came to be signed. Hence, evidently the
"opportunity" to inspect Dittmer's net worth representations,
including what would certainly have been questions about a complex financial
estate, was open for just the two weeks leading up to the marriage. As
a practical matter relating to how we humans are hard-wired, I find it
difficult to imagine how Hill could have undertaken any kind of real investigation
within that time period (without, for instance, canceling or moving the
Nonetheless, she had the chance to do so and her decision not to deprived
her of a legal basis to claim fraud for nondisclosure, or inadequate disclosure,
of Dittmer's holdings and income as of that time.
Apparently the terms that the parties came to agree upon had little to
do with specifics relating to their assets - one can speculate that if
Hill cared enough then about what she claimed to care about now, had her
inquiry resulted in the discovery that Dittmer was worth $50 million rather
than merely $40 million, her attorney might have been motivated to negotiate
a better deal or request some additional provisions. Of course, what is
unsaid but implied in the decision is that Hill loses because her theory
of the case is simply a technical ruse to invalidate what she doesn't
like today - something that evidently didn't matter then.
How the Court Ruled
The court's opinion states:
"The contention that the Agreement is tainted by fraudulent and inadequate
disclosures is refuted by evidence that Hill, both in the Agreement itself
and in her conduct during the three-month period of negotiation, waived
this claim. The Agreement states in part: 'Each party waives the provisions
of California Probate Code Section 143 and California Family Code Section
1615 relating to financial disclosures. . . . The absence of disclosures
shall not create any legal right in favor of either party, nor any legal
remedy by either party against the other including, but not limited to,
challenging the validity or enforceability of this Agreement. Based upon
each party's knowledge of the other's income and assets and their
access to same, and in consideration of the prospective marriage, each
party acknowledges that this Agreement is fair and equitable at the time
of its execution. The foregoing waivers of disclosure are voluntary and
express and shall be deemed conclusive for the purposes of Section 1615
(a)(2)(8) of the California Family Code and for all other purposes.'
The circumstances surrounding the execution of the premarital Agreement
provide substantial evidence that Hill entered into the Agreement voluntarily.
She had the advice of two attorneys specializing in family law and estate
planning during the nine months the Agreement was being discussed and
negotiated. Hill's lawyer drafted the Agreement and revised drafts
of the Agreement in consultation with Dittmer and his attorney. These
facts, coupled with Hill's professional background and evident skills
are strong evidence that she entered into the Agreement voluntarily.
There is no evidence that Hill took any steps to obtain financial disclosures
from Dittmer during the negotiation period, although she was invited to
do so by Dittmer's attorney. Dittmer's attorney sent a memorandum
to Rainey in this regard as follows: 'Article IV (perhaps in Section
4.4) should acknowledge that the financial information provided by Tom
includes his Trust and that 'Tom has provided Sandy's legal counsel
and representatives with full and complete access to the books and records
of Tom and his Trust, with the opportunity to consult with him, and any
of his accountants, agents and representatives as to the nature, value
and cash flow from any of his assets and the nature and extent of his
liabilities.' This provision was contained, in substance, in the Agreement.
Hill's additional argument, that she did not see the final draft of
the Agreement until the date of the wedding and that the agreement she
signed was incomplete, is not persuasive. As the trial court found, the
record shows that the provisions upon which Hill bases her claims of invalidity
had been in prior drafts of the Agreement. Hill's assertions that
she was too busy with wedding preparations to read or understand the Agreement
ring hollow in light of her education and her extensive business experience....
The trial court found as a fact that Hill had adequate opportunity to review
the various drafts of the agreement and that she was aware of and understood
its contents. Substantial evidence supports this finding. Furthermore,
even if it were true that she was unaware of portions of the final Agreement,
her failure to take reasonable steps to become aware of the contents of
the Agreement, particularly given her business background, her awareness
of earlier drafts, and her access to counsel, precludes a finding of that
she entered into the Agreement involuntarily."
Hill also contended that the changes to Family Code section 1615 that became
effective a year later, in 2002, should be retroactively applied to the
question of the agreement's validity and that if they were a different
result would have occurred. Specifically, current section 1615(c)(2) creates
a presumption that a prenup is not executed voluntarily unless the court
makes a finding that the party against whom enforcement is sought had
at least seven calendar days between the date he or she was "first
presented" with the agreement and advised to seek independent counsel,
and the time he or she signed the agreement.
Hence, the amended provisions that are no effective presumes a premarital
agreement is unenforceable when the party who is challenging it did not
receive it at least seven days before it was signed - Hill argued that
the final version was only given her the day of the wedding. The decision
ignores the question whether the "final, final" draft needs
to be presented more than seven days before, because the Court (and an
earlier decision) have found that the 2002 revisions to the Uniform Premarital
Agreement Act are not to be applied retroactively to agreements entered
into prior to January 1, 2002.
The language that Dittmer's attorney requested will likely become
the standard for future agreements like this one, and will create a method
of by which actual disclosure of assets and debts in the prenup can be
avoided - which, the standard of professional care now suggests based
on this decision should become the rule and not the exception. Why now
ever give a detailed financial disclosure, whether by way of exhibits
or statements made in the agreement itself, when that can be waived? Giving
detailed facts in an agreement would appear to be unwise, since the party
who is attacking enforceability then has something specific to challenge.
A 'multitude of sins' can be shielded if the opportunity to investigate
is extended, but not undertaken.
It bears repeating that the provisions attached in the Appendix, including
a form of spousal support waiver, are a very good starting point for drafting
the language for your own agreements.
T.W. Arnold, CFLS